Best Practices for Business Owners to Improve their Cash Flow

The only thing that keeps a business going is cash flow. Getting money in and managing it when it works it’s way through your SME. Making sure that when it leaves your organisation, it is in the most efficient manner.

We have been working with clients on their cash flow management for over ten years now and as I reflect on this, I think good cash flow management comes from having a cash flow mindset.

Let me explain.

All organisations of all sizes can create a cash flow mindset. It can become part of your culture, your overall thinking. From the most junior to the most senior position, if everyone is focused on cash flow, then the company itself is in a much stronger position to compete, to serve its clients and to grow.

Think about it. Instead of cash flow being just another Key Performance Indicator (KPI), albeit a very important one, it is at the centre of how the company runs. A company can have leaner cost structures, more discipline, account mangers focused on bringing in the money rather than just recording a sale and a purchasing manager who purchases to suit the company’s needs not just the budget.

To give an example, recently I spoke with a client about their coffee. My team noticed that they were spending a huge amount on expensive coffee. When we queried this with the client, he said that he would rather have his employees make good coffee in the office rather than having to go out and queue in a coffee shop. He said he’d rather cut back somewhere else to provide this benefit. So here was an IT company owner thinking about cash flow but balancing it with productivity and employee satisfaction.

Having a cash flow mindset enabled him to make better decisions – even little ones like the type of coffee to buy.

Here are a few ways for you to maximise your cash.

1. Cut Overhead Growth

This, of course is the first way to maximise cash. Cut overheads and expenses and by doing so, you’ll have more cash in the bank.

2. Reduce Accounts Inventory Days

Get stock in and out more quickly. Stock sitting on your shelves or warehouse is not good for your cash flow. Consider negotiating and improving supplier lead times.

3. Accelerate Sales Growth

A great way to get cash in is to accelerate sales growth. Consider a sale or discounted offer, especially if you have additional stock sitting on your shelves. Set targets with your sales team so that they are focused on taking action.

4. Increase Accounts Payable Days

Negotiate more favourable credit terms with your creditors. If you don’t ask, you don’t get.

What about negotiating volume rebates with your supplier’s where possible. Have you considered researching best practices or benchmarking in your industry?

5. Reduce Debtor Days

This is by far one of the best ways to get more cash into the organisation. If you reduce your debtor days by a minimum % or perhaps from 45 to 30 days, then it goes without saying that you’ll have money in your account quicker. It’s important to put this in to practice by issuing your invoices as early as possible, including the credit terms and sending regular statements to your customers too.

We have always advocated the use of online accounting software and this will allow you to automatically generate and email invoices. Sending invoices by email rather than post means your client gets the invoice faster. Offering bank mandate or payment electronically by credit card is another fast way to get money in.

You can schedule a process to make sure you follow up with reminders or due dates for bills recurring. You can send a gentle reminder by text or email – all automated.

If you’d like to talk to us about anything in this article, please feel free to contact us. We can help keep your business in shape this year.